A year after state dissolved agencies, little money's left for affordable housing, other priorities

Feb. 1, 2012, was a dark day in the annals of California city building, as the state officially ended redevelopment agencies.

At least that's the view of some neighborhood activists and civic leaders, because as of that date, property taxes collected in targeted areas were no longer set aside for affordable housing, infrastructure upgrades and economic revitalization.

So what's happened since then?

Money that wasn't used to cover outstanding bond payments and manage leftover properties was redirected to schools, counties, special districts and city general funds in a roundabout attempt to help the state plug its budget-deficit hole.

By year's end, state voters had temporarily increased income and sales taxes and closed the hole, at least for now.

But redevelopment is dead for now and there's no prospect for reviving it in any meaningful way anytime soon.

Of course, many critics of redevelopment complained that the program deserved to be terminated if it wasn't vastly reformed. They didn't like the special treatment accorded some favored developers, the forcible transfer of property from one owner to another or the high cost of building housing for low- and moderate-income families.

Many cities spent their redevelopment dollars on new city halls, police stations, libraries, sports and performing arts facilities, shopping centers, convention centers and other public buildings -- all debatable catalysts for neighborhood revitalization.

In the trenches, Jeff Graham, president of Civic San Diego, which the city set up to manage the transition to a post-redevelopment era, has faced 12 months of puzzlement when dealing the state.

"We the city of San Diego, as well as many other cities in the state have found the dissolution legislation far from perfect and it has caused a lot of angst and problems for agencies and projects that were all in the pipeline when redevelopment was eliminated," he said.

The state retained veto power over unfinished projects and forced CivicSD to find other ways to get those done or to drop them for now.

In one case, the city used precious bond funds to keep an affordable housing project alive. In another it put a fire station on hold after spending several million dollars of redevelopment funds on design and now finding no construction money available.

According to the League of California Cities, local agencies filed 42 lawsuits against the state -- San Diego County cities and organizations figured into eight of them -- to clarify or reverse state decisions. Many suits have been settled but more are expected every time a new round of spending plans is submitted and a few rejected.

A parallel network of newly appointed bodies called oversight boards went to work to review former redevelopment projects. Sometimes they objected and other times their approvals were vetoed by the state Department of Finance. The county auditor and controller and state controller also have been drawn into the redevelopment wind down.

Setting aside the bureaucratic confusion, Graham fears for California's competitiveness. This is now the only state, besides Arizona, that does not employ tax-increment financing. That's a method for automatically setting aside taxes in a redevelopment-designated area for its improvement.

"It's going to be hard for us as a state to keep up with what other cities and states are doing to redevelop their inner-city neighborhoods and make them safe and viable places to live and work," Graham said.

He said the go-getter Millennial Generation wants to live in walkable, urban, exciting neighborhoods.

"If we can't create neighborhoods where those folks want to live, they're going to go to other cities," he said.

No dependable replacement for those funds has been identified that doesn't involve raising taxes on businesses, real estate transfers, new development or the general public through voter-approved bonds or new and higher taxes.

Mayor Bob Filner recently spoke of $200 million in former redevelopment revenues that can now be shifted to neighborhoods outside downtown. Graham agreed with that priority shift.

"Downtown has done a great job in attracting private investment and making it a series of neighborhoods," Graham said. "Is it done yet - no - but it's definitely on its way."

He said a Southeastern San Diego neighborhoods, City Heights and other communities need reinvestment -- as a casual windshield tour would demonstrate in the way of broken sidewalks, missing street lights, boarded up commercial buildings and weed-filled empty lots and parks.

Trouble is -- the $200 million is not available for reprogramming.

Much of it goes to retire existing redevelopment bonds. The rest is going back to schools, counties and special districts in proportion to their usual cut of the property tax. City general funds, including San Diego's, got something of a budgetary windfall. But most of the city's $17 million this year was earmarked for covering Petco Park and San Diego Convention Center bonds that redevelopment previously handled.

When the old bonds start to be retired after 2020, those freed-up funds will have to be shared with the other taxing entities, as well.

Bottom line: Graham doesn't think in the long run San Diego can count on anything like $200 million going into municipal treasure chest to benefit neighborhoods, downtown or otherwise.

And so, in the time he hasn't been fighting the state over old redevelopment bills, Graham has been trolling for dollars from new sources.

New sources of redevelopment-like dollars

Federal New Markets Tax Credit: This program helps underwrite new businesses. However, that money is not available for new fire stations, libraries and other city infrastructure.

Investor fund: This might be created to buy sites for mixed-use projects along El Cajon Boulevard, University Avenue and other transit corridors. Redevelopment agents used to assemble parcels of land that could then be resold to a developer. But CivicSD lacks the condemnation powers redevelopment agencies once wielded to prod reticent owners to cooperate. And so, such sites would require willing sellers to make them available. And investors would have to see enough upside to participate.

Revived tax-increment financing: At the state level, Graham said there is talk of bringing back this vehicle for setting aside local property tax dollars. But schools would also certainly be excluded, and without them, 50 percent of potential funds would inaccessible for community upgrading.

Cap and trade: This is the fund generated by credits bought by companies to offset their pollution emissions contributing to global warming. Since those funds are managed by the state, local agencies would likely have to compete against each other for grants.

Reprioritized city budgeting: The city could always set aside more money for neighborhood upgrades; it typically spends all its property taxes on operations and relies on special funds, such as the TransNet gas tax, for road improvements. Graham said the city's budget woes are still so dicey, that it may be several years before there's a surplus to make that possible.

Proposition 13: Residential taxes would continue to be capped under the 1978 statewide voter initiative known as Proposition 13. But business property would be reassessed annually at market rate levels. Considering the already high cost of doing business in California, that prospect remains questionable.

Neighborhood self-help: The final source of neighborhood funds would the neighborhoods themselves -- donations, bake sales and business improvement districts, landscape maintenance districts and other voter-approved micro-local taxes.

Graham said local businesses, especially in non-booming coastal communities, are hurting and would not welcome an additional burden, even if the greater good would result in this you're-on-your-own approach.

Nevertheless, downtown is embarking on a go-it-alone route. The Downtown San Diego Partnership this week launched the "Our Downtown" vision campaign to lay out the community's immediate priorities and, presumably, ways to fund them.

None of these options look like slam dunks, but Graham is optimistic that San Diego's neighborhoods will somehow get the attention and investment they will need to match the interest by the Millennial Generation in living there.

"We're just in a major state of transition with the loss of redevelopment," he said,"and I think it will be a couple more years before we will get our footing in how to adapt and move forward."